12/08/2009 @ 1:20PM

Obama's Small Business Conundrum

Way back in February, small business groups complained that they got short shrift from the economic stimulus bill. Nearly a year later, President Obama now seems to agree.

At the Brookings Institution Tuesday, the president made several overtures to small businesses. He wants to expand or extend some of the tax breaks offered in the stimulus bill, including a 100% exclusion from capital gains taxes next year. And the president proposed an “employment tax cut” to encourage small business hiring. He also wants to cut fees and increase government backing for Small Business Administration programs.

“It’s worth remembering that every once in a while a small business becomes a big business and changes the world,” the president said. “That’s why it is so important that we help small business struggling to open, or stay open, during these difficult times.

Small business groups are happy about the help, but at the same time they worry that a host of Obama’s signature policies could more than offset them.

Take health care reform. The National Federation of Independent Business and the National Small Business Administration both oppose the House of Representatives’ version of reform, which includes an employer mandate for coverage. It would also levy a surtax on individuals who make more than $500,000 annually ($1 million for couples) to help pay for the bill.

Opposition is just as strong for the Senate’s version of reform. In a recent statement, NFIB Senior Vice President Susan Eckerly said the bill amounts to new taxes, new mandates and new entitlement programs. “There is no doubt all these burdens will be paid for on the backs of small businesses.”

Other administration proposals, such as the Environmental Protection Agency’s move to regulate greenhouse gases under the Clean Air Act, are equally noxious. EPA Administrator Lisa Jackson says the administration doesn’t want to snare small businesses in a regulatory trap. That’s why the agency has proposed to “tailor” its regulation of greenhouse gas emissions to affect only the largest polluters.

But some opponents don’t believe the EPA has this authority. Officials from the National Association of Manufacturers have argued that the administration’s exemption for small businesses is hazy under the law. Their worry is that if EPA regulates CO2 for big polluters (and let’s be fair–this is what NAM is truly nervous about), the courts might declare that that small businesses are subject to similar limits on emissions.

Business groups, including NAM and the U.S. Chamber of Commerce also oppose congressional efforts to cap carbon emissions because it would raise the price of energy and could force some jobs overseas. Legislative efforts appear to be stalled, but the EPA regulation could goose Congress into acting.

In addition, there are the usual tax disputes business groups have with this administration. During the 2008 campaign, “Joe the Plumber” gained fame as a small business owner who opposed Obama’s proposal to increase taxes only on the wealthiest Americans because such a plan might also affect small business owners.

Last week the House passed a bill that would prevent the estate tax from expiring in 2010, and instead impose a 45% tax on estates with a $3.5 million exemption for individuals. The NFIB says the rate is too high and the exemption too low. The group wants a full repeal of the tax, but would settle for a 35% rate with a $5 million exemption.

To be sure, much of small business’ opposition to Democrat proposals is directed at Congress and many disputes are longstanding concerns. For example, business groups worry that Democrats will make it easier for workers to join unions, that Congress will pass legislation to expand paid leave and that lawmakers will counter the expiration of the Bush-era tax cuts with a broad range of tax increases. (See: “How Congress Will Steal The Recovery.”)

Nonetheless, small business groups will take what they can get from the White House. “We very much appreciate the attention to small business,” says NFIB’s Eckerly. However, she adds, the president’s proposals won’t draw customers to stores or help businesses increase cash flow. “It’s hard to use tax credits when you don’t have any money,” she says.